Black money crackdown: 1 lakh directors of shell firms sacked, over 2 lakh firms' heads under scanner

The Ministry of Corporate Affairs on Tuesday announced that more than 1.06 lakh directors of shell companies will be disqualified as part of the stepped up war against black money. The move is a sequel to the ministry cancelling the registration of 2.09 lakh companies that have not been carrying out any business activity over a prolonged period.

These firms are suspected to have been used as shell companies for evading taxes and laundering black money. Besides, banks have been asked to freeze the bank accounts of these companies'. The ministry has identified 1,06,578 directors for disqualification under Section 164(2)(a) of the Companies Act, 2013 as on September 12, 2017, an official release said.

Under Section 164, a director in a company that has not filed financial statements or annual returns for three financial years continuously would not be eligible for re-appointment in that company or any other firm for five years. Signalling that more regulatory action is expected, the ministry is further analysing the data of the 2.09 lakh firms available with the Registrar of Companies (RoCs) to identify the directors and the significant beneficial interests behind these entities.

Details of these directors pertaining to their background, antecedents and their role in the operations of these companies are also being compiled in collaboration with the enforcement agencies, the release said. Further, money laundering activities performed under the aegis of these companies are also under the scanner, the official statement said.

The ministry, which is implementing the companies law, has also identified professionals, chartered accountants, company secretaries and cost accountants associated with the defaulting companies. Besides, such people involved in illegal activities have been identified in certain cases and the action by professional institutes such as ICAI, ICSI and ICoAI is also being monitored.

The fight against black money shall be incomplete without breaking the network of shell companies. Possibility of using the shell companies for laundering the black money cannot be underestimated, Minister of State for Corporate Affairs P P Chaudhary said. According to the release, there are about 11 lakh companies with active status after deregistration of over 2.09 lakh firms.

The minister is also monitoring the situation emerging out of cancellation of registration of the companies and is holding regular meetings with officials of the ministry and various related organisations. These include Serious Fraud Investigation Office (SFIO), ROCs, Department of Financial Services, Indian Banks Association and other departments involved in the crackdown against defaulting companies.

"The disqualification under Section 164 of the Act is by operation of law. We are identifying the defaulting directors of these shell companies. My officers have assured me that by the end of this month, we would be ready with the relevant details of all defaulting directors of these shell companies,'' the minister said. He also said that the whole exercise would go a long way in creating an atmosphere of confidence and faith in the system paving the way for ease of doing business in India.